Technicals | Sep 14 2011
LAYMANS:
Telstra hasn’t given us a lot to work with over recent times with the downtrend continuing to take a vice like grip on the stock. Whilst there is no evidence that a turnaround of any magnitude is around the corner there is scope for slightly higher levels to be seen over the coming weeks. As can be seen our upper target wasn’t quite tagged which leaves the door open for one final show of resilience to complete the bounce that commenced late last year. The positive thing over the short term is that the decline that commenced in mid August has for the most part been accompanied by low volume. Also notice the triangular pattern that has been evolving which also implies another leg higher could well be seen before weakness once again sets in. If the recent high at $3.08 can be breached then a push higher similar to that seen off the August 9 low would be anticipated giving us a target at $3.47. That of course is assuming that a low has already been seen which may or may not turn out to be the case, especially with markets again looking shaky. On the flip side, a break beneath $2.92 would imply the bounce has run its course with lacklustre price action being the expected consequence.
TECHNICAL:
It now appears that the final leg higher within wave-c is going to subdivide into way 3-leg pattern and although this is far from ideal there’s plenty of evidence suggesting it’s going to be the way forward. First of all there’s been a strong, impulsive move up from the low of wave-b which has failed to tag our target area which comprises of the wave equality projection and the 1.618 extension of wave-(a). Also notice the pennant that’s been forming over the past few weeks which has been coupled with low volume which in itself is a short term bullish proposition. A break through the upper trend line of the pattern should kick start the final leg higher toward the annotated target circa $3.50. Of slight concern is the Type-A bearish divergence apparent on the weekly time frame (not shown). We don’t give this as much credibility as on the daily chart but it’s something that needs watching nevertheless. If price were to break through the lower trend line of the triangle it’s highly likely that an interim top has already been seen. Not perfect in terms of our preferred wave count but a strong signal that intermediate degree wave-(c) is firmly in position. The severity of today’s decline also can’t be ignored with our local market taking a major hit though we can’t read too much into one day’s price action. As we often say, what transpires over the following sessions is of equal if not more importance. Either way, a substantial breakout in one direction or the other looks imminent.
Trading Strategy
12/9:
Very aggressive swing traders could jump on following a break above Friday’s high at $3.06 with the initial stop set at $2.96 offering a reasonable risk/reward trade if the upper target area is tagged. However, don’t get married to the idea that a longer term impulsive trend higher is going to kick into gear as it’s highly unlikely to do so. I feel like I’ve said it a thousand times but this company has been in a major down trend since 1999 which is something that simply can’t be ignored. Yes, a major bottom will eventually be seen but there’s no evidence it’s going to happen in the foreseeable future. Longer term the company continues to show very weak relative strength and should therefore be avoided if you’re looking for longer term growth prospects.
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The above views expressed are not FNArena's (see our disclaimer).
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Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
